Mean Reversion in Recruiting Startups

January 6, 2021

We've had a few weeks to digest the Hired acquisition news, which you can read about on TechCrunch. Despite our initial surprise at the company's unceremonious end, it turns out that the arc of the Hired story is one that we've seen before from other recruiting startups: companies that set out to upend recruiting often end up reverting to the mean.

The reality is that most recruiting startups wind up looking very much like an agency or a job board over a long enough time horizon. Why? Given the choice between building products for job seekers or building products for employers, most recruiting startups end up pursuing the employer market because there's almost no money to be made from cash-starved candidates. Once you've settled on the B2B path, it's really hard to ignore the appeal of contingency fees or the job board model. Agency recruiters can make serious money without the need for much technology or scale – I recall reading that more than 200 staffing firms generate at least $100 million in U.S. revenue per year – and job boards scale easily and require little ongoing maintenance. These are the paths of least resistance that stand in the way of real differentiation.

Like others before them, Hired ended up pursuing the recruiting agency strategy. Sure, they used software to enable their users and built some innovative features that simplified the job search for job seekers (flipping the script with reverse auctions was especially neat), but Hired faced the same reality as the rest of us: on the whole, good software engineering candidates don't want to pay for job searching tools, and Hired needed to make money to appease investors and finance its candidate acquisition cost. Hired responded by focusing most of its energy on B2B revenue, opening up the employer side of the marketplace to anyone that would pay and lowering their candidate quality bar to maintain balance and liquidity, all under the guise of "scale." The rest of the story is pretty straightforward: with no clear differentiation, Hired spent its last few years competiting on price and feature parity and trying to build a "platform" to unlock a coveted SaaS valuation. That effort failed, and Hired sold to Vettery for parts.

Could Hired have bucked the trend and built something differentiated? Probably not. Hired was likely doomed from the minute it raised so much institutional money while still operating like a tech-enabled recruiting agency. The economics just don't work at that scale. We're still trying to figure it out, too. Maybe the answer is to carve out a niche, priorize deliberate growth over blitzscaling, and slowly build up a brand. That's worked for us so far.